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What R&D Assets Say about Firm Profitability

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  • Pierluigi Santosuosso

Abstract

Research and development (R&D) activities are usually considered a key factor for achieving superior performances. Using a sample of 11,897 manufacturing Italian firms, we examine the relationship between R&D expenditure that is capitalized as an intangible asset and some proxies of firm profitability over a period of four years in order to explore whether R&D assets can help investors in the identification of profitable firms. Contrary to expectations, this paper found a negative and/or an insignificant association between R&D assets and proxies of firm profitability. Although there are several possible explanations for this result, what we learn from this study is that R&D assets are not on average a reliable indicator for detecting profitable firms. Research findings revealed that firms with R&D assets appear to be not so profitable, large and levered.

Suggested Citation

  • Pierluigi Santosuosso, 2016. "What R&D Assets Say about Firm Profitability," International Business Research, Canadian Center of Science and Education, vol. 9(6), pages 64-71, June.
    • Handle: RePEc:ibn:ibrjnl:v:9:y:2016:i:6:p:64-71
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    References listed on IDEAS

    as
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    5. Eli Amir & Yanling Guan & Gilad Livne, 2007. "The Association of R&D and Capital Expenditures with Subsequent Earnings Variability," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1‐2), pages 222-246, January.
    6. Allan Eberhart & William Maxwell & Akhtar Siddique, 2008. "A Reexamination of the Tradeoff between the Future Benefit and Riskiness of R&D Increases," Journal of Accounting Research, Wiley Blackwell, vol. 46(1), pages 27-52, March.
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    More about this item

    Keywords

    research and development; intangible assets; firm profitability; Italian firms;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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